The European Central Bank had euro pairs on the move today. What did the ECB say and is it enough to keep volatility and momentum going? Is the consolidation break in EUR/GBP a true breakout or fakeout?
Consolidation Break in EUR/GBP?
Big moves on the session after the European Central Bank gave their latest monetary policy statement today. As expected, there were no changes to interest rates, but they did decide to slow down their rate of bond purchases under the pandemic emergency purchase program.
During the press conference, ECB President Lagarde went out of her way to make it clear that this is not a taper. The focus is still a 2% inflation target, and she re-iterated that the recovery still depends on pandemic developments. Also, the ECB did raise its growth forecast for 2021 to 5%, as well as the inflation target to 2.2%, but saw declining rates of inflation through 2023 to 1.5%, below that 2% target.
It looks like euro bulls were disappointed with this as the euro sold off against the majors, including the British pound on the session. On the four hour chart above of EUR/GBP, we can see the market broke out of the tightening consolidation pattern around 0.8600, getting as low as 0.8524 before stalling. The question now is whether or not this is a fakeout in the works or if there is a momentum move ahead to the downside.
For now, we don’t see real change as pandemic developments remains as the main driver for policy moves. That means that this initial spike lower may be all that we get for now, but with sentiment now short-term bearish on the euro, we’ll be watching for a bounce and retest of the broken rising lows pattern around 0.8560 – 0.8600.
Any signs of resistance and a bearish reversal pattern there would likely draw in short-term traders looking for another opportunity to short at better prices. And at those levels, the potential return-on-risk if targeting the previous swing low with a stop just above 0.8600 is somewhere in the range of 2:1, a pretty good return-on-risk for swing or short-term positions.
What do you all think? Is this a true breakout on EUR/GBP or will the pair bounce back out to the consolidation area?
